Choppy Trade in Bond Futures Seen after NFP Report
?? Fundamentals
Treasury bond futures traders were on a wild ride this past Friday, as a slew of economic reports were released. The most anticipated of the data was the Labor Department’s numbers for January Non-farm Payrolls and the January Unemployment Rate.
These headline figures were initially a bit of a disappointment, with January payrolls expanding by only 157,000 jobs, when many traders were looking for close to 170,000. The unemployment rate also ticked up by 0.1% to 7.9%, when most analysts were looking for the rate to remain unchanged. However, when delving into the details of the report, the employment picture brightened.
Both December’s and November’s employment figures were revised upward by a combined 127,000 jobs. In addition, the Labor Department’s annual benchmark revision, which incorporated newly available tax records, showed 422,000 more jobs were created than previously thought during the April 2011 to March 2012 time frame.
Bond prices initially rallied after the report was released on the belief that jobs growth was still below the levels the Federal Reserve would be looking for prior to any discussion of altering its current accommodative monetary stance.
However, the price gains proved short-lived.? In addition to the positive job number revisions, traders saw positive signs for the economy in a better than expected University of Michigan consumer sentiment index reading last month (73.8 in January, vs. 71.3 in December) as well as indications of the continued expansion of the U.S. manufacturing sector, with the ISM January Manufacturing Purchasing Managers Index rising to 53.1 in January, vs. 50.2 the previous month.
These overall positive economic reports gave some traders another reason to move funds back into equities and away from government debt such as Treasury bonds in hopes of better returns should the U.S. economy continue to show signs of improvement.
?? Technical Notes
Looking at the daily continuation chart for U.S. Treasury bond futures, we notice prices failed to hold Friday’s early morning rally after the unemployment report was released, as many bearish traders continue to look at rally attempts as selling opportunities. Prices are now well below both the 20 and 200-day moving averages, supporting both the long and short-term bearish view.
The 14-day RSI is nearing oversold territory, however, with a current reading of 33.25. 142-19 is seen as near-term support for March Bonds, with longer-term support seen near the 140-00 price level. Resistance is now seen at the 20-day moving average, currently near the 144-28 price level.
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